Sugar mills' fortunes set for early revival

Might return to profit next quarter as prices rise, losses dip

 

Sugar mills are set for revival, with their returns improving with high market prices and the export subsidy announced by the government. Open market prices has risen 12-14 per cent in the past two months; futures prices are 14.2 per cent higher.

These should, say observers, bring back sugar companies on a profit path from next year; most mills are expected to make operating profits from the June quarter.

A sugar industry official says mills were losing around Rs 4 a kg till early February; they’re still losing Rs 1-1.50 a kg.

After the government announcing a subsidy for exporting raw sugar, trading activity has been warming up and even futures have seen participation on the National Commodity and Derivatives Exchange (NCDEX) after a long while. Open interest and volumes have been going up on the exchange.

Abinash Verma, director-general, Indian Sugar Mills’ Association, said, “The subsidy being given by the government for two sugar seasons for incentivising production and export of raw sugar has been helping mills cut their losses and in the months to come, the changing fundamentals will help reducing farmers’ arrears and a return to viability.”

Till even a month earlier, mills were making losses of around Rs 4 a kg; it is now estimated at Rs 1.5-2 a kg.

Open market prices however are still 20 per cent below the peak of August 2012. Verma said in the current sugar season, 1.2 million tonnes had been exported till February-end. A further 700,000-800,000 could be shipped till September. Isma has cut the production estimate for sugar season 2013-14 (October to September) from the earlier 25 mt to 23.8 mt. Exports and the cut in production will help stabilise the industry’s. The summer season, when demand from cola and ice- cream makers rises, will help.

  Says B B Mehta, chief executive, Dalmia Bharat Sugar and Industries: “The industry’s financial position is improving, with the subsidy and follow-up improvement in ex-factory prices. Strengthening of international prices after Brazil reduced its earlier crop estimates and the reducing surplus in the domestic market is also expected to help show better numbers.”

In recent weeks, sugar unsquared contracts on NCDEX have risen 40 per cent; average weekly volumes have quadrupled from early February’s levels.